Issue explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A company that raises money from shares records each instalment as it falls due and as cash comes in, and records a second set of entries when a shareholder defaults. This guide gives the entries in the order they happen, with one invented company taken from the first application to the re-issue of forfeited shares. It is the accounting side of the process handled by our allotment of shares and PAS-3 filing service.
Shares are issued in instalments, usually application, allotment and one or more calls, and each instalment is first debited to a receivable and then cleared by the cash received. A premium goes to the securities premium account under section 52(1), never to share capital. A company may not issue shares at a discount (section 53(1)). When a holder defaults and the shares are forfeited, the amount already received on them stays with the company in a share forfeiture account until the shares are re-issued; any balance then left is a capital reserve.
What the law says and what it means in the books
| Source | What it requires | What it means in the books |
|---|---|---|
| Companies Act, section 52(1) | A sum equal to the premium received on shares is transferred to a securities premium account | Credit securities premium at allotment, separately from share capital |
| Section 52(2) | The account may be applied only to the uses listed, such as fully paid bonus shares, writing off preliminary expenses and issue expenses, premium on redemption, and buy-back under section 68 | Do not use it to absorb ordinary losses |
| Section 53(1) and (2) | Except as section 54 provides, no issue at a discount; a share issued at a discount is void | Issue price can never be below face value |
| Section 53(2A) | An exception for shares issued to creditors when debt is converted under a statutory resolution plan or debt restructuring scheme following Reserve Bank of India guidelines | A narrow case; not for ordinary raising of capital |
| Section 50 | If the articles allow, a company may accept the unpaid amount on shares before it is called | Credit the amount to calls in advance, a liability, until the call is made |
| Schedule III, Division I, share capital note | Calls unpaid, and forfeited shares at the amount originally paid up, are disclosed | Both items must be traceable in the ledger at year end |
The power to forfeit comes from the company's articles, not from a section of the Act. The model articles in Table F of Schedule I (which apply only where adopted) let the Board sell or otherwise dispose of forfeited shares on terms it thinks fit. Read your own articles before you act, and see our guide on unpaid share money, recovery or forfeiture for the legal steps. Section 52 is covered in application of securities premium, and section 53 in issue at a discount.
The method, step by step
- Application. Debit Bank, credit Share application money for all money received, including money on shares that will not be allotted.
- Allotment of shares. Transfer the application money on the shares actually allotted to Share capital. Money received on shares not allotted is refunded or adjusted against the allotment amount due.
- Allotment due. Debit Share allotment with the whole amount due on shares allotted; credit Share capital with the face value part and Securities premium with the premium part.
- Allotment received. Debit Bank, credit Share allotment with cash received after the adjustment in step 2.
- Calls. Debit the call account when the Board makes the call, credit Share capital. On receipt debit Bank; the unpaid part is debited to Calls in arrears.
- Pro-rata allotment. If shares applied for exceed shares offered, each applicant is allotted the same fraction. The excess application money is the application amount per share multiplied by the shares not allotted.
- Forfeiture. Debit Share capital with the amount called up on the forfeited shares; credit Calls in arrears with what was unpaid and Share forfeiture with the amount actually received on the face value. Any premium already received stays in securities premium.
- Re-issue. Debit Bank with the cash received and Share forfeiture with any discount allowed; credit Share capital with the face value. Move what is left in Share forfeiture on the shares re-issued to Capital reserve.
Worked example: Kaveri Tools Private Limited
The entity and all figures in this example are invented for illustration.
Kaveri Tools offers 40,000 equity shares of face value 10 at an issue price of 15. The amount is payable as 3 on application, 6 on allotment (1 face value and 5 premium) and 6 on the first and final call. Applications arrive for 60,000 shares, so every applicant is allotted two shares for every three applied for. Raman applied for 1,500 shares and received 1,000. He pays application and allotment in full but does not pay the call. The Board forfeits his 1,000 shares and re-issues them at 8 per share, fully paid up.
Workings.
- Application money received: 60,000 x 3 = 1,80,000.
- Transferred to share capital on 40,000 shares allotted: 40,000 x 3 = 1,20,000. Excess: 20,000 shares x 3 = 60,000, adjusted against allotment.
- Allotment due: 40,000 x 6 = 2,40,000 (share capital 40,000 x 1 = 40,000; securities premium 40,000 x 5 = 2,00,000). Cash after the adjustment: 2,40,000 less 60,000 = 1,80,000.
- Call due: 40,000 x 6 = 2,40,000. Raman's call: 1,000 x 6 = 6,000, unpaid; cash received 2,34,000.
- Forfeited shares: called up 1,000 x 10 = 10,000; received on face value 1,000 x (3 + 1) = 4,000; unpaid call 6,000.
- Re-issue at 8: discount allowed 2 x 1,000 = 2,000; cash 8,000.
| Particulars | Debit | Credit |
|---|---|---|
| Bank Dr | 1,80,000 | |
| To Share application money | 1,80,000 | |
| Share application money Dr | 1,80,000 | |
| To Share capital | 1,20,000 | |
| To Share allotment | 60,000 | |
| Share allotment Dr | 2,40,000 | |
| To Share capital | 40,000 | |
| To Securities premium | 2,00,000 | |
| Bank Dr | 1,80,000 | |
| To Share allotment | 1,80,000 | |
| Share first and final call Dr | 2,40,000 | |
| To Share capital | 2,40,000 | |
| Bank Dr | 2,34,000 | |
| Calls in arrears Dr | 6,000 | |
| To Share first and final call | 2,40,000 | |
| Share capital Dr | 10,000 | |
| To Share forfeiture | 4,000 | |
| To Calls in arrears | 6,000 | |
| Bank Dr | 8,000 | |
| Share forfeiture Dr | 2,000 | |
| To Share capital | 10,000 | |
| Share forfeiture Dr | 2,000 | |
| To Capital reserve | 2,000 | |
| Total | 12,82,000 | 12,82,000 |
The share allotment account closes: debit 2,40,000 equals credits 60,000 + 1,80,000. The forfeiture account closes: credit 4,000 equals debits 2,000 + 2,000.
Check. Cash received: 1,80,000 + 1,80,000 + 2,34,000 + 8,000 = 6,02,000. Equity raised: share capital 4,00,000 + securities premium 2,00,000 + capital reserve 2,000 = 6,02,000. Share capital is 40,000 shares x 10 = 4,00,000, all fully paid.
Common mistakes
- Crediting the premium to share capital instead of securities premium.
- Forfeiting at the face value without first removing the unpaid call from calls in arrears.
- Allowing a re-issue discount larger than the amount forfeited on those shares, which leaves a debit in the forfeiture account.
- Moving the whole forfeiture balance to capital reserve when only some of the forfeited shares have been re-issued (only the part relating to the shares re-issued, net of the re-issue discount, is transferred), or leaving that part in the forfeiture account after the re-issue.
- Treating money received on shares not allotted as income; it is a liability until refunded or adjusted.
Need help with a share issue?
If your company is allotting shares and the entries, the board resolutions and the return of allotment have to match, our team can prepare the accounts and the filing together. Start from our allotment of shares and PAS-3 page and tell us how the instalments are structured.
Key takeaways
- Record each instalment as a receivable first, then clear it with the cash received.
- Premium goes to the securities premium account; the Act bars an issue at a discount (section 53).
- Excess application money is adjusted against allotment or refunded.
- Forfeiture transfers the called-up amount out of share capital, keeps the cash received in a forfeiture account and removes calls in arrears.
- What remains in the forfeiture account after the re-issue discount is a capital reserve.
Read next
- Issue of debentures: journal entries at par, premium and discount
- Bonus issue and rights issue: accounting entries
- Section 62: further issue of share capital
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.